BA announces £150million loss after weak pound hits profits

British Airways became a high profile casualty of the weakening pound yesterday after warning that it would make a loss of about £150million this year.

The airline pays a big chunk of its bills in dollars and euros because it has large operations at U.S. and European airports.

It also pays 'overflying' costs - charges levied by countries for flying in their airspace - in dollars and euros.

Last week, sterling touched a near 24-year low against the dollar of around $1.35, while the euro is in striking distance of hitting parity with the pound.

Pounding: BA pays many bills in dollars

BA said in a trading update that it would probably have an operating loss of £150million this year.

Chief executive Willie Walsh had previously forecast that the airline would break even.

Shares in the flag carrier fell almost 8.5 per cent after revealing it would report a third-quarter loss of about £50million, and that it would probably have an operating loss of £150million for the year.

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Mr Walsh has taken the axe to his management team in recent months, cutting over 400 of middle management roles, or about one third, in an effort to drive costs down.

The whole airline industry is in turmoil at the moment as carriers fight for survival. There are fewer big spending business passengers as the credit crunch has forced banks and other City institutions to cut back. And economy flyers are even harder to come by, as hard up punters postpone non-essential travel.

BA has been hit harder than most. The carrier’s December traffic figures revealed a worrying 12 per cent decline in the number of high-paying first- and business-class passengers flown.

Analysts reckon BA makes between 60 per cent to 70 per cent of its profits from these ‘premium’ flyers.

One industry source said of the BA profit warning: ‘I think it is a bellwether for the seriousness of the state the airline industry is in.’

Although he had hoped BA would break even this year, helped by a combination of cost cutting and higher fares, Mr Walsh warned in July last year that avoiding a loss would be a ‘considerable achievement’.

He believes the economic headwinds faced by the industry are the worst, even tougher than those following the 9/11 terror attacks in New York and Washington.